Bermuda-based commercial insurer XL Capital Ltd. saw its share price sink to its lowest level in more than 13 years after the outlook on its claims-paying ability was lowered to "negative" by Fitch Ratings yesterday.

The ratings firm expressed concern the company will have further losses linked to it stake in Bermuda-based bond guarantor Security Capital Assurance Ltd. (SCA).

A slump in afternoon trading left XL's closing share price at $20.56, down $3.61, or 13.5 percent for the day.

Fitch may cut the A+ grade on XL Capital's subsidiaries, the ratings firm said yesterday in a statement.

Fitch said XL has an ongoing exposure to SCA via a facultative reinsurance contract, an excess of loss reinsurance contract, and an unlimited guaranty in support of any losses payable on the pre-August 2006 initial public offering (IPO) financial guaranty portfolio.

"XL is actively working to resolve its exposure to SCA and while Fitch views successful resolution of this exposure as a positive, the size of any charges, and the manner in which XL funds any charges, could have an impact on the ratings," Fitch said.

"Fitch envisions if a large charge is ultimately taken that is not offset by an equity-like capital raise, ratings would likely be downgraded by one notch. If there are no additional charges or they are modest, or if a capital raise is executed in the event of a larger charge, Fitch would likely affirm the ratings and return to a stable outlook."

XL posted a loss of more than $1 billion for the fourth quarter of last year, largely because of charges related to its interest in SCA. The company has, however, already written down the value of its approximately 46-percent stake in SCA down to zero.

XL chief executive officer Michael McGavick, who took over from Brian O'Hara in May this year, has made it his number one priority to deal with the SCA-related problems.